United States: Third Circuit Adopts New Broader Standard For Defining Protected Activity For Whistleblowers

Last Updated: March 26 2013
Article by Edward T. Ellis, Gregory C. Keating and Jill Weimer

The roller coaster continues for how to define protected activity under the Sarbanes Oxley Act (SOX). In a recent decision that signifies a major setback for employers, the United States Court of Appeals for the Third Circuit became the first Court of Appeals to adopt the Department of Labor's Administrative Review Board's (ARB) 2011 decision in Sylvester v. Parexel, L.L.C., a decision that dramatically broadened the scope of protected activity under SOX.

Background

Prior to Sylvester, the ARB followed the standard set forth in Platone v. FLYi, Inc. Platone held that in order to engage in "protected activity" under SOX, a whistleblower bears a heavy burden by describing conduct that "definitively and specifically" relates to one of the six categories of unlawful acts set forth in the statute. However, the ARB abandoned the Platone standard in its May 2011 decision in Sylvester.  The ARB held that would-be whistleblowers claiming retaliation need not identify fraud with specificity to be engaged in protected activity but may engage in protected activity simply by making general complaints. 

While the Sylvester decision significantly expanded the scope of protected activity under SOX, it had nevertheless not been adopted by the federal courts. In fact, recent decisions in the Sixth Circuit1 and in the Southern District of New York2 have held the "definitively and specifically" standard still applies. Now, the Third Circuit in Wiest v. Tyco Elec. Corp.3 has become the first federal court to adopt the broader standard of "protected activity" announced in Sylvester.

In Wiest, accountant Jeffrey Wiest brought an action under SOX against his employer, Tyco, alleging he was terminated in retaliation for reporting alleged violations of company policy and sound accounting practices. In 2008, Wiest refused to process a payment request and sent an email to his supervisor expressing his belief that the costs for a particular event were inappropriately charged entirely as advertising. Tyco proceeded with the event and, in response to Wiest's suggestions, made changes to the way the expenses were treated. Wiest continued to raise similar concerns regarding other expense submissions and accounting issues. Wiest alleged that Tyco became frustrated with his persistence in following proper accounting procedures and as a result, began to investigate him for incorrectly reporting a particular receipt, having a relationship with a co-worker, and making sexually-oriented comments to co-workers. Wiest was terminated in April 2010. The district court threw out the case finding that Wiest did not allege in his complaint that his engagement in protected activity was "definitively and specifically" related to the protected categories of SOX.  The Third Circuit, however, reversed the district court's dismissal of Wiest's SOX claim.

The Third Circuit's Decision

The court held that the "definitively and specifically" standard conflicts with section 806 of SOX, which prohibits retaliation against employees for reporting information that they "reasonably believe" violates SOX. Citing its former decision in Passaic Valley,4 the court noted that if the whistleblower provision was to accomplish the goals of the statute, then "employees must be free from threats to their job security in retaliation for their good faith assertions of corporate violations of the statute." Referencing the legislative history of section 806, the court held that an employee must establish not only a subjective, good faith belief that his or her employer violated a provision listed in SOX, but also that his or her belief was objectively reasonable. The Weist decision is significant because the Third Circuit – which includes Pennsylvania, Delaware, and New Jersey – is the first Court of Appeals to address and adopt the less burdensome Sylvester standard.

The dissent objected to this approach as overly broad because it failed to take into account the statutory requirement that the whistleblower complaint relate to one of the six categories of federal law.  The dissent also stated that this standard opens the door for complaints that merely allege wrongdoing without also showing that the violation is even covered by section 806.

Chevron Deference

The Wiest decision is also significant because the Third Circuit is the first court to hold that the ARB's flip-flop from Platone to Sylvester is entitled to Chevron5 deference. In Chevron, the U.S. Supreme Court held that courts should defer to agency interpretations of their statutes unless they are unreasonable.  Generally, when "the court determines Congress has not directly addressed the precise question at issue... the question for the court is whether the agency's answer is based on a permissible construction of the statue."6 The Third Circuit found that the ARB had thoroughly explained its decision to reverse course and abandon the "definitively and specifically" standard in Sylvester because it was too stringent. Therefore, the ARB was entitled to deference in its decision to overrule Sylvester, notwithstanding that it was a reversal of prior ARB case law.

The dissent opposed this about-face and contended that the court had adopted an internally inconsistent test in Wiest.

In contrast to the Third Circuit, other circuit courts have adopted the "definitively and specifically" standard.7 Given the widening split in authority, it appears this roller coaster ride may be destined for the U.S. Supreme Court.

Implications For Employers

This decision is troubling for employers because it sets a low bar for whistleblowing employees. If an employee can articulate a belief that his or her employer is doing anything that might be construed in hindsight as a violation of one of the categories of law in section 806, then the employee can obtain substantial protection from ordinary discipline or termination of employment.

In the wake of Wiest, the best offense is a strong defense.  Employers in the Third Circuit should review and evaluate their complaint and investigations procedures and protocols to ensure that they are prepared to address any complaints. Employers should also be vigilant in responding to employees who complain about alleged company wrongdoing or policy violations. Finally, employers should strongly consider implementing whistleblowing and retaliation training, not only for managers but also for senior executives and members of their board of directors.

Footnotes

1 Riddle v. First Tennessee Bank, No. 11-6277 (6th Cir. Aug. 31, 2012).

2 Nielsen v. AECOM Tech. Corp., No. 12-cv-05163 (S.D.N.Y. Dec. 11, 2012).

3 No. 11-4257 (3d Cir. Mar. 19, 2013).

4 Passaic Valley Sewerage Comm'rs v. U.S. Dep't of Labor, 992 F.2d 474 (3d Cir. 1993).

5 Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-43 (1984).

6 See id. at 843.

7 Day v. Staples, 555 F.3d 42 (1st Cir. 2009); Welch v. Chao, 536 F.3d 269 (4th Cir. 2008), cert. denied, 129 S. Ct. 1985 (2009).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions